Insights

Founding a startup? There are various ways to do it and finance it. The most common model involves a founder or founding team with an idea, who then start a company and secure funding from venture capital firms, business angels, or corporate venture capitalists.

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However, another option is the venture studio model (we, Flagship Founders, e.g. are a venture studio).

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It happens often that the venture studio model is confused with the venture capital firm model. And although the distinctions can be blurred indeed - many players combine several models under one roof - and the definitions are not always clear-cut, we would like to outline the core differences between both models.

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Creation vs. Investment Focus

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Venture Studios: Probably the most important difference: while VC funds finance existing startups with venture capital, venture studios build their own startups from scratch. This includes an extensive ideation process, for which technology and industry experts from the venture studio and its network work together to develop the best idea for the next startup. The best idea means: it needs a sufficiently large market, the right technology and the potential for scalability. Venture studios then look for the right founders or founding teams for these self-developed business ideas, who then build up the startup with the support of the venture studio, scale it and, in the best case, lead it to an exit or an IPO after a few years. Important to know: The venture studio has a significant equity share in the startups from the outset, so it is always also a shareholder. However, a venture studio only invests in its own ventures, not in external startups.

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Venture Capital Firms:Contrary to the venture studio model, a VC firm manages a pool of capital (the VC fund - “VC fund” and “VC firm” are often used interchangeably) that is in most cases collected from various investors to be invested in early-stage, high-potential companies. VC firms operate by identifying promising startups, conducting due diligence, and then providing financial resources to these companies. They often invest in multiple rounds of funding. VC firms come in very different sizes, but most of them invest in several hundred startups at the same time. They seek high returns by identifying and backing innovative companies that have the potential for significant growth. A VC firm’s primary objective is to generate high returns for its investors by exiting when the company goes public or is acquired.

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Hands-on vs. Financial Support

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Venture Studios: Venture studios are heavily involved in the day-to-day operations of their startups. They offer not just financial support via their investment, but they also provide access to their network, their industry and technology expertise, and key resources that every startup needs to grow successfully. This often includes shared office space and access to specialised departments like HR, sales, marketing and finance.

The degree to which venture studios are involved in the daily business of their startups naturally varies. It also changes over the development curve of a startup: while most venture studio startups work very closely with the venture studios at the beginning and access many or all of the resources offered, they usually detach themselves more and more from the venture studio as they mature. This growing independence is intentional and necessary for a startup to be able to operate independently and autonomously on the market and become attractive for external investors and, at some point, for buyers.

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Venture Capital Firms: BBesides their financial investment, VC firms often offer strategic advice and network access to help startups succeed. However, their primary role is as financial investors rather than operators. The level of involvement can vary, but it is generally much less intensive compared to the hands-on approach of venture studios.

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Sector Focus vs. Diverse Portfolio

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Venture Studios: Most venture studios have a clear focus, either on a specific sector (such as the maritime industry, as with Flagship Founders), a specific type of business model, or a specific technology such as blockchain or IoT (such as Next Big Thing AG). This is because of their business model: to be successful, they need to have deep expertise in their industry and an excellent network. This is easier to achieve if they limit themselves to a specific sector. Cross-industry venture studios include Rocket Internet, Founders Factory and Atomic. These are often much larger than specialised venture studios.

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Venture Capital Firms: TThere are VC firms with a sector focus and those without - and everything in between. Over the last few years, the percentage of those with a focus on a certain industry has increased while the percentage of broader focus VC firms has decreased. So there has been a trend towards specialisation recently, but the degree of this industry focus still varies.

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Despite this development, it can still be said that a large proportion of the well-known and large VC firms do not have a narrow sector focus, but invest much more broadly.

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The largest and best-known VC funds are usually not limited to individual industries. Examples include Andreessen Horowitz and Sequoia Capital. More specialised funds include, for example, World Fund (climate tech) or Rethink Ventures (mobility and logistics).

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What are the Pros and Cons of both models?

It is important to note here that the two models are largely not in direct competition with each other; rather, they are both an important part of the startup world and cooperate when VC firms invest in a venture studio’s startup. Nevertheless, a look at the main advantages and disadvantages of both helps (potential) founders and investors to make a good decision when faced with both options.

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Venture Studios

Pros: Venture studios offer startups comprehensive support. This enables founders to focus on growth, leveraging best practices and avoiding common pitfalls. Streamlined processes in venture studios accelerate the journey from concept to market, reducing execution risks. By building multiple startups, studios spread risk across a diversified portfolio, reducing failure risks and attracting investors interested in diversification. Additionally, the venture studio model appeals to entrepreneurial talent, especially those who have previously founded companies and understand the challenges of doing it alone.

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Cons: One major concern about venture studios is that founders may lack full commitment since they didn't originate the idea. While this can be true, venture studios often have motivated, talented founders involved from an early stage, making the startup feel like "their baby." Another drawback is the high equity share venture studios hold in startups, though this varies widely. Additionally, venture studios face the challenge of balancing support and autonomy for their startups, requiring tailored solutions rather than a one-size-fits-all approach.

VC firms:

Pros: VC firms provide substantial funding and embrace high-risk ventures, crucial for startups looking to scale quickly. They can offer large sums of capital, often much more than traditional loans, and their high risk tolerance benefits early-stage startups with innovative but unproven business models. Their expertise, their network and especially their reputation (at least this applies to the big names) can help open many doors for founders.

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Cons: Strategic conflicts can arise between the VC firm and the startup due to misaligned visions. Additionally, the classic VC model isn't suitable for all industries. Traditional VCs seek fast, high returns, which isn't feasible in sectors like maritime tech, where market sizes are smaller, making startups less attractive to large VC funds.

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Flagship Founders: A Venture Studio with a clear industry focus

Flagship Founders is a maritime-tech venture studio. By bringing together top founders, leading industry players as development partners, a robust network, and providing hands-on co-founding support, Flagship Founders builds successful companies that address critical sector needs. With a portfolio of five thriving maritime-tech companies, we have a profound understanding of market dynamics and the importance of network effects. This expertise positions Flagship Founders as an ideal partner for investors looking to enter and succeed in the maritime tech space.

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